February 7, 2017


Report: Cash-Flow Tax System Would Improve Simplicity, Income Inequality, Economic Growth (Ali Meyer, February 6, 2017, Free Beacon)

"Another way to think about the border adjustment is that the corporate tax would ignore revenues and costs associated with cross-border transactions," according to the Tax Foundation. "The tax would be solely focused on raising revenue from business transactions from sales of goods in the United States."

Two economists from the Treasury Department and the Congressional Budget Office evaluated how replacing the current corporate tax system with a destination-based cash flow tax system would impact the economy.

"There are reasons why a cash flow business tax paired with an individual income tax on wages and capital income might be sensible in the United States," the authors said. "For example, as reform options are considered in the current public discourse, there have been broad calls for reforms that would simultaneously spur growth and help address increasing income inequality."

"The combination of a business tax on cash flow and a progressive individual income tax on wages and capital income might prove to be a path forward," they said.

The authors noted that the cash flow system would simplify the tax system by focusing on the point of purchase or sale instead of the types of goods purchased or sold. The new system also would spur growth by removing a disincentive to investment. Finally, the cash flow system could reduce income inequality since the current corporate tax system adversely affects labor.

"Our findings, coupled with the potential advantages that a cash flow tax provides in terms [of] simplicity, incentives for growth, potential progressivity, and fewer distortions on firm location choices, lead us to conclude that this style of reform is promising," the report states.

Posted by at February 7, 2017 7:30 AM